OMOs Not Aimed At Helping Govt; No Room For Aggressive Rate Cuts: Gokarn (04-Feb-2012)
Brushing aside the suspicion that the Reserve Bank of India (RBI) is trying to help the government in its borrowing by creating demand for particular securities, thus pushing down yields, Deputy Governor, Subir Gokarn, said the RBI's choice of securities to buy in open market operations (OMOs) is not aimed at reducing the cost of borrowing for the government but to ensure an adequate supply of liquidity in the banking system.
He stated that there is not much room for aggressive interest rate cuts because of high commodity prices and sticky inflation. Also restrictions on speculative trading in foreign exchange market would stay in place for now despite the recent rise in the value of the rupee against the dollar and higher capital inflows.
Gokarn said, 'OMO is a quick short-term, easily implementable liquidity instrument.' 'The CRR has monetary implication. We cannot use it in the same tactical way that we use OMOs because with every CRR action there is a communication challenge in terms of what it means for the monetary stance.' By adding further he said, '(A CRR cut) is something that is best done in the cycle of policies and that is the way we have been looking at it.'
The RBI cut the CRR by 50 basis points to 5.5% on January 24 but kept its key policy rate unchanged. Separately, Gokarn said there was little room for aggressive cuts in interest rates right now, compared with 2008.
India sold $2.64 billion of bonds on Friday and the RBI set a cut off price of Rs 98.29, yielding 8.1842% on 7.83% bonds maturing in 2018. The cut-off price for 8.79% - 2021 bonds was Rs 104.20, yielding 8.1542%. For the 8.83% - 2041 bonds, the cut-off price was Rs 103, yielding 8.5488%.
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